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Major Music Groups Not Onboard With Qtrax

NEW YORK (AdAge.com) -- The already troubled ad-supported-music market hit another major snag yesterday. Qtrax, a music service looking to make an ad-supported business out of the illegal peer-to-peer market, launched yesterday at the MIDEM music conference -- without expected support from the four major music groups.
Qtrax President-CEO Allan Klepfisz said that the company has spent the past four and a half years on licensing so as not to violate intellectual-property rights.
Warner Music Group issued a statement Sunday night saying it had not signed any licensing agreements with Qtrax. Executives from EMI, Sony BMG and Universal Music Group all confirmed to music trade title Billboard yesterday that they had no agreements with Qtrax, though a Universal executive said a deal could close "within the next few weeks."

Qtrax secured the MIDEM launch date months ago to make a splashy announcement, rushing up to the last minute to secure licensing deals with the major music groups and support from advertisers. Launch advertisers including H&M, Boost Mobile and Burger King confirmed their involvement as late as Jan. 24.

MIDEM launch date
Qtrax President-CEO Allan Klepfisz in a statement said Qtrax kept its MIDEM launch date "precisely because of the degree of support we have had and continue to enjoy from rights holders. We believe the exact nature of that support will be publicly clarified within a very short time." He added that Qtrax has spent the past four and a half years on licensing so as not to violate intellectual-property rights and will provide the rights holders with activation keys "shortly upon final execution of all pertinent contracts."

That may not be soon enough, according to some analysts of the ad-supported-music market. Marc Cohen, a music-industry executive who runs the Ad-Supported Music Central blog, said it may be best for Qtrax's investors if the service never launches at all. "They'll lose less money that way. It's a doomed business model," he said.

Efforts to monetize music downloading and file sharing have been explored by several companies in recent months, including SpiralFrog, Ruckus and iMeem. Last week, CBS's streaming-audio site, Last.fm, joined the mix when it announced plans to change its structure and business model to an ad-supported music-downloading site.

Like niche magazines
Yet the sites' still-unproven market value has yet to make a big impression on the ad community. Jeff Marshall, senior VP-digital managing director at Starcom USA, told Ad Age that music sites tend to get as much advertiser consideration as niche magazines. "They still haven't fully fleshed out great ad opportunities. You can do streaming spots or audio spots like you can on radio, banner ads and those kinds of things ... but unless you're really going after that audience or have a really direct tie-in, you're looking for them to create a unique ad opportunity."

Mr. Cohen said he doesn't consider content from sites such as Qtrax and SpiralFrog "ad-supported music" at all. "It's giving away music so people will view their website," he said. "The ads are not integrated with the content that is attracting the audience. That would be like people watching a TV show ad-free with the idea that they then go onto the TV site to watch the ad that's paying for the TV show."

The closest thing to "ad-supported music," Mr. Cohen added, is on the Peter Gabriel-backed site We7, which offers free music downloads with audio ads embedded in the MP3 files. While Mr. Cohen said he doesn't see any widespread consumer acceptance of ads accompanying song downloads, he said the model could be the next step for the troubled ad-supported-music market. "I believe it's inevitable that the Last.fms, the iMeems will go to audio ads very much like radio. There will be initial resistance to that, but it will be the only way you can get the resistance to work. Then it becomes very much like radio -- when it goes to downloads, and then those downloads are portable, and the ads follow, but the ads are not integrated into the file like We7 does."